Israel's conflict with Lebanon, possible U.N. sanctions against Iran, and earnings that hint the end of double-digit profit growth is near pushed market anxiety to the tipping point Wendesday. The turmoil undid any goodwill generated by Tuesday's afternoon rally and provided a convenient backdrop for a stock market selloff.

The Dow Jones Industrial Average lost 121 points, or 1.1%, to close at 11,013.18 while the S&P 500 fell 1.1% to 1258.60. Keeping with its year-to-date trend of underperformance, the Nasdaq Composite suffered worst Wednesday, sliding 1.81% to 2090.24.

"The bounce from the June lows has run out of steam," says contributor Barry Ritholtz, chief market strategist of Ritholtz Research and Analytics and president of Ritholtz Capital Partners, a New York-based hedge fund.

After losing 7.6% from its peak on May 9, the S&P 500 had bounced back 5% through the end of last week from its June 13 low of 1223.69. Ritholtz believes that bounce has run its course and a retest of the major indicies' June 13 lows may now be in order. The S&P and the Dow are still up 2.8% from their respective June lows while the Nasdaq is only up 0.85% from its June lows.

A successful retest of those levels -- of about 10,706 for the Dow, 1224 for the S&P and 2072.50 for the Comp -- is the most likely scenario, but is certainly not guaranteed. A hint of a more serious decline (and bear market) could be seen Wednesday as many exchange traded funds and indices broke through their 200-day moving averages.

The broken down include the S&P 500, the S&P 500 SPDR Trust ( SPY), the Amex Securities Broker/Dealer Index ( XBD), the Nasdaq 100 Trust ( QQQQ), the iShares Russell 2000 Index ( IWM) and the Mid-Cap SPDR Trust ( MDY).

The iShares MSCI Emerging Markets Index is hovering above its 200-day moving average, but overnight trading could easily bring it down if international bourses follow the U.S. markets.

The price of oil and other commodities gained ground Wednesday with the geopolitical tensions, but oil stocks didn't rally in concert. Oil gained 0.79 cents to close at $74.95 per barrel, while the Energy Select SPDR ( XLE), which tracks oil exploration and production stocks, was down 0.35%, and the Oil Services HOLDRs Trust ( OIH), which tracks oil services stocks, was up only 0.04%.

The semiconductor sector suffered a case of 'easy come, easy go' as it led the market lower Wednesday after sparking a late-day rally Tuesday. The Merrill Lynch Semiconductor HOLDRs ( SMH) lost 2.69% Wednesday, giving back most of its 3.1% gain Tuesday.

Intel's ( INTC) fell 4.2% Wednesday, as Microsoft ( MSFT) fell 2% on news that the European Union fined the software company $357 million for violating anti-trust laws.

Perhaps technical factors showed the market was ready for some profit-taking, but the 'why now?' is a bit of a head-scratcher, says Marc Pado, U.S. market strategist at Cantor Fitzgerald.

"Traders are wondering, 'Where is this going? Is this going to escalate?" Pado says, referring to the White House statement Wednesday blaming Syria and Iran for the kidnapping of Israeli soldiers by Hezbollah militants. The kidnapping sparked the Israeli government to launch a military attack at the Lebanon border, escalating tensions in the region. Iran also came under fire by U.N. Security Council members again Wednesday.

Earnings news didn't provide anything positive to grab on to, but nothing horrendously negative either, and the trade deficit narrowed. Economists had predicted $65.3 billion for May, and the government reported $63.8 billion. Buried amid higher costs for energy imports, exports grew in the month of May. That is good news. Even though the deficit data ratcheted up expectations for second- quarter GDP growth to 3.5% from 2.8%, the Federal Reserve likely would not frown upon higher GDP due to more exports, says John Lonski, chief economist at Moody's Investors Service.

Shark Sandwich

In the satirical film about rock musicians Spinal Tap, one of the musicians brags about the power of his giant amplifier: "This one goes to 11."

The same absurdity may be true for Wall Street earnings forecasts. In another indication of bearish tendencies, investors' anxiety is high over how much longer double-digit profit growth can continue. Investors are selling on any hint of bad news, like Genentech's ( DNA) weaker-than-expected Avastin sales, even when the report would look like a home run in any other quarter. Genentech's shares fell 3.66% Wednesday.

Earnings expectations should be high for the Alcoa's ( AA) of the world -- the materials and energy stocks that have led the market and that should be benefiting from global growth, says Pado. "But oustside of materials and energy, meeting expectations is a good thing," he says. Alcoa gained 0.85% Wednesday after losing 4.9% Tuesday.

The fear can be seen in the rise in the CBOE Volatility Index, which climbed 10.27% to 14.49 Wednesday. That's a big rise, but the VIX traded well above 20 in mid-June, suggesting the market's anxiety will get amped up (maybe even to 11) if a retest of those June lows is in the offing.
In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click here to send her an email.